The American Dream has always included buying a house. Saving up enough for a down payment on your own house was something to aim for and be proud of. Renting, conventional wisdom held, was throwing money away.

In fact, our whole tax structure was setup in such a way to significantly incentivize people to take out a mortgage and buy a house. Would we be in the financial position we are now if you didn't get to deduct mortgage interest off your taxes? Less people would have purchased homes and the government wouldn't have had to return all that cash after mortgage interest deductions--maybe the deficit would have been a little smaller. Maybe our own deficits would have been a little smaller, too, since buying a house tends to come with lots of little (and big) unforseen expenses.

Put aside the market crash for the moment. I think it might be worth reexamining our lemming-like participation in this asset class as a society.

Moreover, owning a home tends to keep you geographically anchored. Think about what society and the working world is placing a premium on these days--flexibility. People with an expertise--be it consulting, languages, engineering, etc.--go where the work is and get highly compensated for the "inconvenience". At the same time, people who can be flexible about their own cash outflows can take more entrepreneurial risks, whereas lots of people with good ideas or passions can't join startups because they have a mortgage to pay.

Your average Detroit autoworker, on the other hand, is not only in danger of losing his job, if he hasn't already, but, his family they can't even move. So forget the pie in the sky notion of getting retrained to take a cleantech job working on building and repairing windmills in the Great Plains, because they can't sell their house.

When I was at GM, we took part in the leveraged buyout of AMF, the bowling company. One of the first thing the buyout fund that led the deal did was to do a sale-leaseback. In other words, they decided that owning a bunch of real estate wasn't a good way to capitalize this business, so they sold it, put the cash towards higher ROI investments in the company as well as a dividend to the shareholders, and just paid rent as an expense.

Historically, bubble aside, owning real estate is a lower risk, higher cashflow investment--certainly meant to return less than the equity markets. So why do we push so many young people and young families to try and buy a home? Shouldn't they be putting their capital into potentially higher returning investments?

You might provide examples of real estate transactions that have worked for people in rising markets... and I'm sure there are lots--but the historical, long term performance of the asset class isn't that high. Excess returns from individual transactions not only incur a boatload of unsystematic risk (like that you accidently built the house on a sinkhole), but require alpha on the part of the manager. Like most illiquid/private asset classes, the diversity of returns among managers is very high. In other words... You can make a killing in real estate if you know what you're doing and you wind up getting lucky enough to bet on a good property, but don't be so quick to assume everyone can be better than average.

What are some of the other things young people might invest in. Well, think about my specific case? In order to buy an apartment (you know, since I did the silly thing of buying something I could afford), I moved out to Bay Ridge, Brooklyn, a 45 minute commute into the city. On average, I go into the city six days a week. That's about an extra 4 hours of time compared to if I was living in the city per week. Multiplied over a whole year, at a rate of $100 an hour (let's say I chose to do consulting with that time), you're talking about $20,000 a year. I never factored that cost in. Nor did I factor the social cost. Who am I not building better relationships with because I live further away? Isn't investing in my social network at this point a higher potential return than real estate as an asset class--especially given that I'm an entrepreneur?

So what would the issue be if we just rented our whole lives? People might say that you wouldn't have anything to leave to your kids--but we tax the hell out of inheretences anyway--not to mention the fact that you shouldn't need to buy a house to save money. Personally, I think if we de-anchored ourselves from one spot for a big chunk of our lives, we might be better suited to take advantage of career opportunites, meet new people, and experience new things. Tell me where the flaw in this argument is.